Employee Performance an Increasing Part of Downsizing Decision

December 17, 2004

Who should we lay off?

The decision used to come down to figuring out what employees’ titles were and how long they’d been around the company. But a Lee Hecht Harrison survey shows that employees' performance and skill sets are increasingly being considered when a company downsizes.

At 36 percent of U.S. companies and 26 percent of non-U.S. employers, employees' performance was the most important factor in recent downsizing decisions, according to the study. And at 29 percent of U.S. companies and 15 percent of non-U.S. companies, skill sets played the largest role.

In contrast, length of employment and job title were cited by only 5 percent to 8 percent of companies.

"Up until recently, companies initially vetted payrolls with an eye to 'last in, first out' and eliminating positions that were redundant or ostensibly less critical to the organization," says Lee Hecht Harrison executive vice president Bernadette Kenny. "After the widespread downsizings of the mid-1990s, however, companies found they lost significant talent they could have used in the ensuing upturn. Such losses are probably what led so many of today's respondents to say their organizations made strategic, performance-based personnel decisions in recent layoffs."

Kenny says that she has only anecdotal data showing how downsizing decisions were made in prior years. A decade ago, she says, businesses were focused on cutting costs. Now, she says, "businesses are very aware of the potential talent shortage coming up because of the demographics. They’re now focused on growing businesses," rather than just cutting costs.

Lee Hecht Harrison’s study was based on a telephone survey of 300 senior human resources executives from organizations in the United States, Europe, the Asia-Pacific region, Central America, South America and Canada. Global Strategy Group conducted the survey.